Inflation

Economic Affairs

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Indian Economy - Understanding the basics of Indian economic system

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Consider the following statements

The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
The WPI does not capture changes in the prices of services, which CPI does.
Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given- above is/are correct ?

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UPSC CSP Previous Year Paper (2020)

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1 and 2 only

2 only

3 only 4

1, 2 and 3

Explanation:

Statement 1 is correct: The weightage of food in the CPI is close to 50%. Weightage of Food group in WPI is 39.06%.
Statement 2 is correct: The WPI inflation does not capture price changes of services but the CPI does.
Statement 3 is incorrect: The Reserve Bank of India on 1 April 2014 adopted the Consumer Price Index (CPI) as the key measure of Inflation. Till now the Reserve Bank of India (RBI) was using Wholesale Price Index (WPI) to gauge and measure indicative inflation projections.

Hence option 1st is correct.

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